Does gender affect your odds of start-up success?

Wednesday

Jul 31, 2013 at 6:00 AM

Peter S. Cohan - Wall and Main

Is there a specific set of traits that boost a person's odds of being a successful start-up CEO? If so, do start-up capital providers seek out people with those traits regardless of gender? If not, are capital providers biased towards investing in men-led ventures?

My guess is that the answers are yes, in some cases, and often. And since venture capital has woefully under-performed as an asset class — according to Cambridge Associates, the internal rate of return on the average VC fund in the decade ending 2012 was a meager 6.9 percent below the NASDAQ's 8.5 percent – it desperately needs more successful entrepreneurs who can boost VC's' returns.

Adding more women and men – possessed with the traits that lead to successful exits – to the pool of start-up CEOs could help. And to do that, both capital providers and entrepreneurs should make some changes.

These thoughts come to mind after reading the New England Venture Capital Association's (NEVCA) survey of 100 Boston-area entrepreneurs that was published July 24. It revealed that a majority of women entrepreneurs face a tough time getting capital.

Yet some women entrepreneurs who have gotten funding generated tremendous value for shareholders and thousands of jobs. And my interviews with a woman entrepreneur and a venture capitalist who has reaped that value, suggest that the traits of a successful entrepreneur are the same for men and women — and that men and women should examine whether they have those traits before launching a start-up.

The NEVCA's survey found that 70 percent of Boston-area entrepreneurs say that the region's startup community is either sometimes or not at all inclusive to female entrepreneurs. NEVCA executive director, C.A. Webb, explained in a July 24 interview, that she wants Boston to be the best place for women-led start-ups.

“Our vision is to make our city the best for men and women start-ups. This means doing more of what we are already doing and some new things as well. We need to maintain and strengthen our base of venture capital and angel investors, make mentors accessible to entrepreneurs, and build our clusters of knowledge and expertise in enterprise, robotics, and healthcare IT,” said Ms. Webb.

She also wants aspiring political leaders to work with local investors and entrepreneurs to help the region compete. According to Ms. Webb, “We need the candidates running for mayor of Boston and soon, Massachusetts governor, to be more declarative about Boston's strength in IT — not just biotech. And we need them to work with the start-up community to craft strategies to make the region more competitive.”

But Ms. Webb's vision for a gender-blind start-up community will not happen unless the “pipeline” is more robust. “More girls in K through 12 must take math and science; they should go to coding camps; adults should lobby for computer science education in public schools; CEOs should recruit and hire more women; and investors and entrepreneurs should invite more women to social events — like Red Sox games.”

In general, Ms. Webb believes that there is much that educators, politicians, investors, and entrepreneurs can do to help produce more women entrepreneurs. But will these things help if a person lacks the basic traits for entrepreneurial success?

Carol Barash, founder and CEO of NYC-based Story to College, sees the same attitudes towards women entrepreneurs in Manhattan as the ones highlighted in the NEVCA study. But she believes that women need to make themselves better entrepreneurs rather than waiting for the world to adapt to them.

“Raising money, hiring and firing people, and negotiating with customers and suppliers require toughness and persistence. On July 23, Story to College won the Count Me In Urban Rebound accelerator program for women entrepreneurs sponsored by Sam's Club. Too many women CEOs at Count Me In could not answer basic questions about their start-ups — such as how much profit they would make this year or who their competitors are,” said Ms. Barash.

Ms. Barash, author of "Write Out Loud," has observed the importance of toughness and resilience from role models. “My mother started a company and sold it for $20 million. In order to do that, I saw her make sacrifices — she tended to the business more than to herself.”

While I am seeking statistics about the relative investment performance of women-led start-ups, research suggests that women at the top of publicly traded companies contribute to higher investment returns for their shareholders.

Illuminate Ventures noted in June 2010, “Organizations that are the most inclusive of women in top management achieve 35 percent higher ROE and 34 percent better total return to shareholders versus their peers—and research shows gender diversity to be particularly valuable where innovation is key.”

And at least one venture capital firm has enjoyed tremendous results from investing in women-led start-ups. Izhar Armony of Charles River Ventures (CRV) said, “CRV has seen tremendous success backing women entrepreneurs: Paula Long at Equallogic — Dell bought it for $1.4 billion – and Data Gravity, Tushara Canekeratne at Virtusa, — it trades at a market capitalization of $650 million – and Maria Cirino at Guardent — VeriSign bought it for $142 million – have collectively created over $2 billion in shareholders' value and more than 7,000 jobs. We would love to see more of those startups led by women,” explained Mr. Armony.

But in his view, they were great entrepreneurs first — and their success was not related to their gender. As Mr.Armony explained in a July 24 interview, “Entrepreneurial success is gender neutral. Paula, Tushara, and Maria share the traits of a successful entrepreneur regardless of whether they are male of female: they have high IQs, which enable them to see into the future of their industry; they are gutsy and brave and willing to take personal and professional risks; and they are stubborn and persistent in the face of setbacks and competition.”

For VCs to earn higher investment returns, they need more winning bets. And their odds of doing that will rise if there are more entrepreneurs with the high IQs, guts, and stubbornness to turn their unlimited vision into a fast-growing venture that multiplies VCs' capital.

To that end, VCs should invite more women entrepreneurs to business social events and aspiring male and female entrepreneurs should assess whether they have the right traits before launching a start-up — and if they do, make sure they get the skills they need to excel

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy and entrepreneurship at Babson College. His email address is peter@petercohan.com.